Investors across the globe are selling stocks after Germany announced it was banning naked short selling of credit default swaps, plus certain euro area bonds and 10 key financial companies.
A flight to quality lifted the U.S. dollar index to 87.28, a 14-month high. Other major currencies flew the other direction, with the euro abruptly falling to a new four-year low against the dollar at $1.2144 and the pound dropping to $1.4239, its lowest level in 14 months.
The ban it expected to be temporary, lasting until March 31, 2011.
“Considering European equities are down over 2% across the board and the euro hit a four-year low (under $1.22), I don’t think their new rule was particularly effective. Talk about unintended consequence,” said Benjamin Reitzes from BMO Capital Markets.
“In any case, the rule has little impact as most CDS are traded in London and New York,” he added.
Ninety minutes before the opening bell, Dow futures are off 56 points to 10,434 and S&P 500 futures down 7.5 points at 1,111.25. The 2 year Treasury note is 2.4bps higher at 0.757% and the benchmark 10 year note is 1.8bps higher at 3.374%
Commodities are also lower, with WTI crude oil down $1.14 to $68.27 per barrel, and Spot Gold lower by $7.60 to $1,207.00
Key Events Today:
8:30 ― The Consumer Price Index is expected to be flat in April, following a 0.1% advance in March. Conversely, core prices, which exclude volatile food and energy prices, are expected to rise 0.1% after being flat in March. On both fronts, in other words, the risks of inflation and deflation are firmly balanced, allowing the Federal Reserve to focus less on prices and more on growth and employment.
“Core consumer price inflation should ease another notch to a 34-year low of 1.0% in April, further below the Fed’s long-run forecast of about 2%,” said economists at BMO Capital Markets. “High unemployment and falling unit labour costs flag further disinflation ahead, which should keep the Fed parked on the sidelines for the better part of the year.”
“Food prices should push higher, but lower gasoline and natural gas prices should hold down the CPI headline,” added economists at IHS Global Insight. “Pump prices rose in April, but less than normal for the time of year, which translates into a seasonally adjusted decline.”
9:00 ― William Dudley, president of the New York Fed, gives opening remarks before the Community Reinvestment Act and Community Development Opportunities for Non-Profits Conference, as hosted by the New York Fed.
10:00― The Mortgage Bankers Association releases its National Delinquency Survey for the first quarter. The report covers more than 40 million loans on one-to-four-unit residential properties, representing more than 80% of all first-lien residential mortgage loans outstanding in the United States.
2:00 ― The Minutes of the FOMC Meeting seem unlikely to reveal much, given that dovish policy was left unchanged ― the Federal Reserve opted to hold rates “exceptionally low ... for an extended period” ― and the April meeting was held just prior to the most tumultuous period for Greece.
“One area of interest in the minutes will be whether more members of the committee ― that is, other than [Kansas City] President [Thomas] Hoenig ― have begun clamoring for a change in the statement's language,” said economists at Nomura. “While we expect no change in the statement for a few more meetings, as growth improves, open discussion about an end to the ‘extended period’ phrase should become more prevalent.”
There could be some discussion of purchasing mortgage-backed securities, the economists said.
“While we expect that most members favor [MBS] sales at some point, debate is intensifying about whether sales should come before or after funds rate increases. . . The minutes would be a natural place to reveal a shift in the committee consensus, so we will be watching this space closely.”
